Letter From The Immediate Past President Of The South/Central Texas Chapter Of The Association Of Corporate Counsel

2007-04-01 01:00

To the Readers Of The Metropolitan Corporate Counsel :

Many in-house lawyers move laterally into business and out of practicing law. Some astute attorneys, with no business training, seem to have a "business radar" and can pick up on the nuances of how to succeed in business while doing their legal work off in a corner of the building. While other attorneys find it more of a challenge. Not everyone is "wired" to run a business. It is challenging for attorneys to be both a legal counselor and a business person at the same time, especially if they jump back and forth between roles, switching hats faster than Lucille Ball could shove chocolates off a fast-moving assembly line and into her shirt. Like Lucy, it's often hard to keep up with what's coming. Besides, in-house attorneys risk waiving the attorney client privilege by participating in business decisions and signing contracts.

So why are lawyers expected to know how to read a spreadsheet, budget expenses, and manage employees without any formal training in those areas? In this way, a lawyer's practice is similar to that of a physician. Physicians train in a medical specialty, then are expected to learn through osmosis how to hire, fire, project earnings, budget, and collect accounts receivables. Maybe there is something to be learned by us lawyers, looking from thirty thousand feet at the medical profession's odd expectation of spontaneous business savvy.

When I was in private practice, I dealt with many physicians to help them with their practices from entity formation through managed care and Medicare issues. It was a challenging legal practice since physicians are typically very bright and capable of their specialties, but have no training in how to run a business. It was disconcerting when I would give them business advice based on the 100 other practices I had seen in the course of my representations as an attorney, and the physician would disagree with my common sense recommendation. Although I can be wrong from time to time (don't tell my kids), the knee-jerk rejection of tried and true business advice was surreal. I'm not talking advice regarding nuances of the business. I made suggestions like, "I recommend not telling your nurse that she needs to show some cleavage to work in your office. She may perceive it as sexual harassment," or "generally, you shouldn't have your medical office buy season tickets to the Spurs for your entire staff if you are borrowing money to pay the light bill." At a board meeting of a large physician group, a physician, who trained in Russia, threw a chair across a board room when he disagreed that the physicians in his group should "eat what they kill" (getting paid proportionately for amount they billed). While the idea was good and used by many practices, I was relieved that I wasn't the one who suggested the equitable pay option. I don't like to wear office furniture.

It's easy to look at the medical profession and see how doctors transfer their expertise into areas where there is no training, and as such, there is no basis for their decisions. What is difficult is for attorneys to admit that they are just the same. Law firms, for example, are run by attorneys who don't want the young MBA they hired to manage the firm to tell them what to do. All over the country, there are large law firms who have made repeated mistakes in treating their own attorneys as the enemy, paying them as little as they can get away with, and disparately at that, banking on the fact that the firm is too large for one side of the building to learn what the other is making.Others have schedules of salaries that allow for a particular salary if you are breathing that year, regardless of originations or billables.

Ironically, these same firms are literally throwing money away by paying new lawyers upwards of $150,000 for absolutely nothing other than to list how many overpaid employees they now have on the annual law school recruitment reports. The rationale is that the young lawyers are "an investment in the future," and that "good bright lawyers are difficult to find" so the exorbitant salaries are worth it. The reason that this is bad business is that the value is illusory. There is no contract to keep the young lawyer chained to his cubicle until the return on investment is accomplished. More than half of the new associates in the upper salary ranges quit to go to a smaller shop within five years. For some firms, it's over seventy percent. Is that a good investment? Probably not.

To pay the cream of the crop their huge starting salaries, law firms have to bring in more clients to create more originations and billable events. Madison Avenue has taught the big firm lawyers that they are missing out on their market share by not having proper public relations and advertising. As such, many law firms have hired marketing professionals to spread the good word among in-house counsel as to why they are better, faster, more technologically advanced, and better communicators. This marketing effort leaves many hours left unbilled by the attorneys. Their solution then is to raise their billable rates.

Some attorneys in the U.S. are billing out at $600 per hour. These aren't the folks that are first on your mind when you have a big case, either. They are an entire floor of attorneys at an expensive building, billing out 10 hour days at $600 per hour. It's hard for me to perceive why the value is there for that sort of rate.

So what have we learned from looking at doctors, lawyers, and Indian Chiefs? In-house attorneys should make a conscious decision whether they are on the road to being a business person, or whether they love the law and don't want to change. This helps keep focus and preserve privilege. We also know that we can't take for granted that firms are organized in a way to give us the best value. It's not fair to assume an attorney managing a law firm can even see what our best interest is, through all the fog of what they believe to be in their firm's best interest. In-house attorneys have to actively participate in fee negotiations, selecting who works on our files, and what value we expect for the dollar our companies are spending. The result is a good trusting relationship with outside counsel. It just takes a little more effort that we usually have time for. Therein lies the challenge.

And if your doctor's staff seems sort of disorganized next time you have an appointment, take comfort in the disorganized physician's office. It may mean they are concentrating on what they know best . . . giving you great medical care.


Lee Cusenbary